Very few products could lay claim to the versatility that CBD offers consumers. Derived from the hemp plant, this non-psychoactive cannabinoid has been making waves recently, primarily because it is packed with a plethora of medical benefits. CBD can be used to address insomnia, chronic pain from arthritis, anxiety and a host of other conditions. Naturally, a product with this many benefits is bound to have a lot of demand, and high demand usually results in higher prices and higher profit margins. This has attracted a ton of sellers, each looking to make a buck or two from the new wonder drug.
The business has especially been booming in Europe; sellers have been making a killing with turnovers of up to €100 million. New entrants have been flocking to the CBD industry, trying to get a hold of all the money that’s been going around. However, the relatively new sector in Luxembourg might face a slump even before it really picks up after a 50% tax was imposed on all CBD products. Previously, CBD had been taxed the standard 3% for food items, but this new bill will increase that to 33% along with 17% VAT.
The bill might be catastrophic for the industry, still in its infancy in Luxembourg. The Cannabis Foundation’s president, Christophe Zimmer, says the move has hit small businesses hard, with new shops having to register foundations that require a stock free toll. According to him, it’s uncertain whether these businesses will be able to afford such a steep tax on their profits. New businesses that have recently signed a three or four-year lease will especially feel the pressure.
Note, though, that the bill wasn’t passed entirely out of the blue. According to Zimmer, a lot of the formalities required for all the relevant paperwork to be in order takes a while, roughly one or two months, but the move came much sooner than anyone expected. Notice was given to businesses in the industry only two months ahead of time, and it is still unclear why the tax will be applied at such short notice.
As you can imagine, a 50% tax is pretty steep. A kilogram of CBD will set you back around €2,500 ($3161), and a gram of the same would then sell for about €10 ($12.64), with a profit margin of €8 ($10.12) per gram. However, once the tax comes into effect on December 1, sellers will have to make do with as little as €2 to €3 ($2.5-3.79) in profit.
It is widely believed that CBD industry players like The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTCQX: TGODF) and VPR Brands LP (OTCQB: VPRB) would look at such a tax as an existential threat to the industry warranting intense lobbying to modify it.
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